Tuesday, July 20, 2010
IBM’s New Math: 6.5 is Greater Than 8
“Let's get back. On the signings basis, as we analyzed it, we had on -- in the GBS business we had good revenue growth. We had positive signings performance. So then when you look at Global Technology Services the issue that we wrestled with was really in our Outsourcing business. The point I was making on the Outsourcing business is that if you look at the complexion of those signings by analyzing the larger deals, we actually did very well on a year-to-year basis on the new business signings content. It was not only a year-to-year basis, but it was also quarter-to-quarter.
“So if you look at deals greater than $50 million in Outsourcing, the new business content was up 33% year-to-year. It was up 36% on a quarter-to- quarter basis. That, frankly, generates a better near-term characteristics than we see in extensions, obviously. And it gives us confidence as you look at the $6.5 billion of signings in Outsourcing this quarter, we will frankly get much better characteristics on a revenue line from those signings than we did last year at $8 billion….”
—Mark Loughridge, IBM CFO, July 19, 2010
So it is that IBM, which always seems to “beat-and-raise”—even if, as in the case of last night’s earnings, the raise is a mere 5c a share—declared a type of new math…to whit: 6.5 is now greater than 8.
Of course, technically speaking, IBM is simply saying that the disappointingly small $6.5 billion of bookings recorded last quarter in its outsourcing business will contribute a more pleasing revenue quality than the $8 billion in bookings signed in the same quarter last year.
Nevertheless, we here at NotMakingThisUp must note that last year, as any jaded observer of IBM’s relentlessly upbeat earnings-call-management style might expect, the company made no such distinction when announcing the $8 billion in outsourcing signings.
In fact, last year the same CFO strongly encouraged Wall Street’s Finest to “be impressed” with that quarter’s booking figure:
“Our outsourcing signings are up 12% globally…. I mean you can’t look at that and not be impressed with that level of signing performance.”
—Mark Loughridge, IBM CFO, July 16, 2009
We here at NotMakingThisUp have no beef with IBM: a company left for dead 20 years ago is today generating double-digit returns on assets and consistently generating more cash than it can reasonably deploy elsewhere, so much so that it has returned excess cash to shareholders at reasonable valuations—exactly what the whole “returning value to shareholders” thing is about.
But a little upbeat spin-control for the benefit of Wall Street’s Finest goes a long way…and turning 6.5 into something greater than 8 is the kind of nonsense we can live without.
I Am Not Making This Up
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The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.
Posted by Jeff Matthews at 9:47 AM